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Fund EcoMarket

the sustainable, responsible and ethical investment information hub

Name: Sustainability Themed funds

Investment funds which focus on sustainability related issues and opportunities when making investment decisions

Brief description of Style

Sustainability Themed funds focus on the opportunities presented by the major social and environmental shifts that are taking place (and likely to accelerate) as we transition towards more sustainable lifestyles.  Funds in this group are typically positively oriented and forward looking.  Strategies may be complimented by additional exclusion criteria to aid transparency.

SRI approach applied

Fund managers select companies that fit within their published investment themes and typically favour well run, forward looking, longer term focused businesses.

Fund managers in this Style generally select companies with strong environmental, social and governance strategies, often favouring those that are enabling or driving the shift towards sustainable business practices (‘solutions companies’).

Some funds invest significantly in larger, blue chip companies that display sustainability leadership relative to their peers (‘best in sector’), others focus more on ‘solutions’ companies and innovators.

Some sustainability funds aim to measure the positive environmental and/or social impacts (particular carbon emissions) that they are helping to deliver through their investment decisions.

Although most agree that aiming to measure positive outcomes is desirable, it is an evolving area where strategies, opinions and methodologies vary (as a result of its complexity and the diverse challenges we face).  This is particularly important as company practices vary and may or may not take into account their (downstream) supply chains or indirect impacts when disclosing statistics about their operations. These measurements can also overlook the nature of a company’s products or services (e.g. having a high carbon footprint may be more acceptable from a manufacturer of wind turbines than a manufacturer of aeroplanes).

The ‘Policy’ and ‘Features’ filters on Fund EcoMarket – as well as the text and links provided – explain individual fund strategies further.

SRI Issues

Fund managers generally look for investment opportunities in growing sectors that are useful and ‘sustainable’ for both society and the environment.

Relevant issues include addressing climate change, the responsible use of finite resources, good employee and stakeholder relations and solving challenges, for example through the development of new technologies or ways of working.

Industries that are viewed as inherently unsustainable (unable to continue in the long term) are typically avoided – or not held.  There are however grey areas, particularly where a company is making strong progress transitioning towards more sustainable business practices or where a valuable product or service is provided.

Variation across Style segment

Fund aims, approaches, investment strategies and resources vary. Strategies vary.  With regard to climate change (specifically – helping to keep global temperature increases below the internationally agreed +1.5-2c degrees), strategies relating to both adaptation and mitigation are relevant.

Investments can be in a wide range of sectors as most need to transition to become more sustainable. Examples include health and well-being, transport, education, energy, resource use and waste management.

Some funds invest significantly in larger companies, others focus on smaller and mid-sized innovators.  Many invest across both groups.

Some explicitly avoid certain areas (particularly armaments, tobacco and coal) however exclusions are often used to help clarify where they will not invest in order to reassure investors (as such sectors are unlikely to meet the positive selection criteria of a Sustainability Themed fund).

Some of these funds, particularly those with in-house expertise, include Responsible Ownership strategies and actively use share ownership to encourage more sustainable business practices.

Impact on investment strategy

Fund managers invest in companies that are expected to succeed as a result of their approach to major environmental and social challenges, risks and opportunities.  They will, for example, aim to hold companies that are well positioned to benefit from the raising of standards across areas such as climate risk, resource efficiency, employment practices and governance related improvements.

Some of these funds invest across a wide range of sectors, others focus on a more concentrated range of companies, in line with their published strategies.

Who is this Style most likely to appeal to?

Ideal for investors who are looking to benefit from, support and/or encourage companies that understand sustainability issues and are responding to changing risks and opportunities.

Associated Styles

Some of these funds have much in common with ‘Balanced Ethical’ and ‘Environmental Themed’ funds and ‘Sustainability Tilted’ funds.

Associated jargon

Sustainability, environmental, solutions, transition.

Providers

Fund providers include established and newer market entrants.

 

 

 What is Sustainability?

Commonly used explanations of sustainability refer to, or are variations of, the following:

‘…meeting the needs of the present without compromising the ability of future generations to meet their own needs.’

Source: The Brundtland Report 1987

 

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